The Mises Institute monthly, free with membership
July 2002, Volume 20, Number 7
The Marvel That is Capitalism
by Llewellyn H. Rockwell, Jr.
Economic life is an intricate global system of exchange, one that works without any central direction. It generates prosperity and its own form of order within the framework of liberty. This is what is sometimes termed the magic of the marketplace, and we should never under-estimate its power. We can see by looking south to Argentina how a failing economy, one thrown into shock by bad legislation and monetary policy, has destroyed the livelihoods of the entire population.
We are not just talking about the earnings in people's stock portfolio. We are talking about whether mothers can afford to buy milk for their children, and whether the businesses that deliver milk have the freedom to be entrepreneurial and find the least-cost methods to make such deliveries possible. When we speak of economics, we are talking about the health of society, and whether medical equipment is working and affordable, and whether the labor market is sufficiently free to permit everyone a place within the division of labor.
People who dismiss the teachings of economics forget that many of the world's wars and ethnic slaughters began in economic intervention. Before warfare broke out in Yugoslavia in the 1990s, the country was afflicted by one of the most extreme hyperinflations in the history of the world. This literally destroyed the standard of living and helped turn a previously settled society into a killing field.
If we look back at history, we can see that many wars began in trade disputes, when governments attempted to reward some producers at the expense of others. This was the origin of the Civil War, for example. Even in our own times, the perception in the Muslim world that US/UN sanctions against Iraq have slaughtered hundreds of thousands of children has fueled hatred that has culminated in terrorism. The general lessons we can draw are that economics is really just a fancy word for the quality of our lives, and that the quality of our lives has no greater enemy than the governments that attempt to restrict economic liberty.
Looking at people's lifespans is perhaps the best way to see the hidden history of the rise of economic development. Throughout the first huge period of human history, from the beginning until the birth of our fathers' great-grandfathers, the average lifespan was 20 to 35 years, and a third to half of all children died before reaching the age of 5.
Economic conditions before very recently in the history of man could not sustain a world population that rose above a few million. As late as the year 1800, the average lifespan was only 40.
The standard of living for the average person throughout all but the smallest slice of human history can be aptly summed up in the words of Thomas Malthus: "At nature's mighty feast there is no vacant cover for him. She tells him to be gone, and will quickly execute her own orders." That was life as everyone but kings knew it after the Fall and before the Industrial Revolution.
But in the last tiny fragment of the history of the world, lifespans have more than doubled and the world population has increased one thousand times. By far the largest improvements in these vital statistics have occurred since 1800, at a time when the division of labor expanded dramatically around the world; when property rights were secure; when capital could be accumulated, invested, and a return paid and reinvested; when technological improvements permitted new forms of productivity. What made this possible was the free market.
We take for granted such luxuries as refrigeration, the air conditioner, the internal combustion engine, and electricity, to say nothing of email, the web, and fiber optics. But we rarely reflect on the fact that all of these technologies, so integral to our lives, were absent when our great-great-grandfathers were alive, along with every previous generation in the history of the world. What set this revolution in motion was the world of ideas, when great thinkers began to understand the internal logic of the market economy and its potential for liberating mankind from poverty, dependency, and despotic rule.
Given this history, one might think that everyone would sit and marvel at the products of capitalism. We might think that intellectuals would dedicate their lives to defending this system and explaining its merits. We might imagine that statesmen would dedicate themselves to protecting this system of economic progress from every attempt to curb it or abolish it.
Alas, that is not true. Quite the opposite. The intellectual world often appears to be a conspiracy against market economics, and the media routinely ridicule capitalism. Statesmen spend every waking minute trying to curb, regulate, hamper, or otherwise loot the capitalist system.
Those who attacked the World Trade Center were driven by revenge but also by a belief that the towering products of the commercial society somehow represent an evil that must be destroyed rather than a virtue that should be emulated. They were merely absorbing a view that is pervasive in our culture today, where the anticapitalistic mentality runs rampant.
In our own times, we have seen the evil produced by this mentality, in the former Soviet Union and in many Third World countries, where politicians do everything possible to keep the entrepreneurial spirit penned up, where property rights are not secure, and where investment for the long term is not permitted. The result is always the same: poverty, despotism, death.
I have a special attachment to the ideas of Ludwig von Mises and to the courageous life he lived in defense of the idea of freedom. He began his career in Vienna, writing about the problem of the business cycle and the role of money and credit in fostering it.
The core point he made in his great 1912 book, A Theory of Money and Credit, was that artificial increases in the money supply are not a substitute for real economic production; indeed such increases cause economic damage that can only be rectified through painful economic contractions. His point has continuing relevance.
His next book, from 1919, sought to defend the idea that governments ought to be small and geographically limited, for the sake of social peace. Next, in 1920 and 1922, he proved that socialism could not work as an economic system because it abolished property rights in capital and thus destroyed the system of profit and loss that allows for economic calculation. His methodological and business cycle writings from the 1930s are some of the most profound in the history of the social sciences. Finally, in 1940 and 1949, he produced what is quite possibly the finest product of any economist in history: his monumental treatise called Human Action.
Incidentally, he wrote most of his treatise in exile in Geneva from his native Austria. The invading German armies deemed his work dangerous. They entered Mises's apartment and looted his files and papers. Mises, you see, was against socialism, whether Bolshevik or Nazi. Reflect on that and begin to understand the absurdity of calling communism leftist and Nazism rightist, as if they were polar opposites. They are both varieties of the very opposite of freedom itself.
If I could give a reading assignment to every student, for the sake of the future of civilization, it would be Human Action above all else. Yes, at nearly 1,000 pages, it can be intimidating, and you will probably need to read with a dictionary nearby. But it will open up new vistas of thought for you, and help you to rise above conventional wisdom. I continue to believe that this book points the way for us to bring about rising and sustainable prosperity, and also to guard civilization against its enemies.
Mises believed that no power on earth is as strong as ideas. We live in the world of ideas, so we must take our responsibilities very seriously. The achievements of freedom should speak for themselves, but sadly they do not. Freedom needs courageous individuals who are willing to stand apart from the mob, and state an unconventional truth.
Llewellyn H. Rockwell, Jr., is president of the Ludwig von Mises Institute. (firstname.lastname@example.org). This is an excerpt from a speech delivered at Campbell University in North Carolina.